Investment Advisers Face More Regulation of Social-Media Use

June 28, 2011 – ArticlesSecurities Law BlogAuthor: Joshua Horn

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The use of social media by consumers has logically resulted in the burgeoning use of social media by financial advisers. In this fast changing environment, regulators will have to similarly move fast to ensure that there is proper oversight over this use of social media. I recently wrote in another posting that FINRA will likely focus on the use of social media in the coming years. As FINRA's regulatory framework now stands, registered principals are required to approve static advertisements, such as adviser profiles, that can be found on social media sites. Interactive content, however, does not require pre-approval, but does require member firm supervision. Member firms are also required to keep records pertaining to the content on social media for three years.

The Commonwealth of Massachusetts, in what was probably the first-ever effort, recently announced a program that is surely a precursor to the regulation of the use of social media by investment advisers. Securities regulators in Massachusetts are conducting a survey of investment advisers to determine the types of social media they use. By conducting this survey, the regulators will have a better sense of how social media is being used and, in turn, decide whether and to what extent such activity needs to be subject to regulations. The survey requests information about the social media sites being used. In addition, the survey inquires if investment advisers have implemented compliance protocols to ensure that the use of social media comports with state and federal securities laws. The regulator also requested information regarding whether investment advisers monitor third-party posting on their websites and record retention of social media usage.